Article 11 of the Convention defines a mechanism for the provision
of financial resources to developing countries on a grant or concessional basis,
including for the transfer of technology. The Article also specifies that the
financial mechanism shall function under the guidance of, and be accountable to,
the COP, which shall decide on its policies, programme priorities, and eligibility
criteria related to the Convention. The COP designated the Global
Environment Facility (GEF) as an operating entity of the financial mechanism
in 1998.

At COP 2 (Geneva, July 1996), decision 12/CP.2 was adopted bringing into force
a Memorandum of Understanding (MOU) between the COP and the Council of the GEF.
The COP regularly provides updated policy guidance to the GEF on its climate change
activities and, for its part, the GEF reports to the COP on an annual basis.

At COP 4 (Buenos Aires, November 1998), Parties confirmed the status of the
GEF as an operating entity of the financial mechanism on an ongoing basis, subject
to review every four years. Also at COP 4, Parties included the provision of additional
guidance to the financial mechanism within the scope of the Buenos Aires Plan
of Action.

At COP 6 (The Hague, November 2000), Parties failed to reach agreement on the
question of additional guidance to the operating entity of the financial mechanism
and referred the decision of the guidance to a resumed session of COP 6.

Latest developments

At COP 6 part II (Bonn, July 2001), Parties adopted the Bonn
Agreements on the Implementation of the Buenos Aires Plan of Action, registering
political agreement on key issues. Together with the Bonn Agreements, Parties
concluded work on a detailed decision on additional guidance to the financial
mechanism, which was forwarded to COP 7 (Marrakesh, October/November 2001) for
adoption. This decision expands the scope of activities eligible for funding under
the GEF, including those related to adaptation and capacity-building. In addition,
the decision invites the GEF to continue its efforts to improve its functioning
as operating entity of the Convention’s financial mechanism, including by further
streamlining its project cycle and minimizing the time between the approval of
project concepts and the disbursement of funds.

As part of the Bonn Agreements, Parties also established three
new funds: a special climate change fund and a least developed countries fund
under the Convention, and an adaptation fund under the Kyoto Protocol. All three
funds will most certainly be operated by the GEF.

Over the most recent reporting period (July 1999 to June 2000), total project
financing disbursed by the GEF for climate change activities exceeded US$ 1,424
million, including US$ 199 million in grant funding and US$ 1,225 leveraged through
co-financing. Discussions on the third replenishment of the GEF Trust Fund are
ongoing.

Next steps

The completed decision on additional guidance to
the financial mechanism will be presented to COP 7 for adoption. COP 7 will also
consider the annual report of the GEF.